Developing Tourism Through Turmoil in Ukraine - Report Example

DEVELOPING TOURISM THROUGH TURMOIL IN UKRAINE The recent crisis in Ukraine has precipitated a sharp reduction in foreign tourism to Russia. The majority of the recent cancellations have come not only from Europe and U.S, but also from Asian countries, which are considered to be indifferent to political tensions that involve Russia. According to tourism authorities, the cancellation rates that have been witnessed in the last few months, ranging from 15% to 25% are a serious blow to the tourism industry (INFO, 2014). In the year ending 2013, tourism figures in Russia grew by average of 3.7% to close at 2.7 million figures by the close of the year. A large number of these tourists came from China, U.S and Germany (UNWTO, 2013a). The table beneath indicates the country’s tourism inclinations in the last ten years. Table 1 Russia’s share in international arrivals, income and expenditures, %   1995 2000 2004 2005 2006 2007* 2008 2009 2010 2011 2012 2013 2014 Tourist arrivals 1,61 2,81 2.61 2.48 2.39 2.29 2.24 2.36 2.42 2.442.47 2.42 2.57 2.63 Tourist income 1,06 0,72 0,82 0,83 0,95 0,98 1.23 1.26. 1.44 1.56 1.10 1.21 1.89 Tourist expenditures 2,86 1,86 2,48 2,62 2,56 2,59 2.64 2.63 1.56 2.66 2.69 3.106 3.30 Tourism authorities confirm that European tourists lead in the number of those cancelling their trips to Russia with some cancellations being based on ideological differences. Moreover, a great number of the cancellations being based on security concerns in the wake of the crisis in Ukraine. Most of the cancellations are from would-be tourists who are afraid of getting caught in the midst of a possible war zone that seems to be developing along the eastern border between Russia and Ukraine. If the current crisis does not come to an end in the near future, tourism agencies are worried that the state of insecurity along the eastern border could reduce tourism. The figures may drop by more than fifth as the current risks would drive visitors away (Glaesser, 2012). The greatest concern that has affected the number of tourists coming from U.S and Europe stems from the fact that most of the them are pensioners. Thus, they are cautious of where the risk posed to their hard-earned income from what they hear or read from the news (Woodside, 2010). Regardless of the state on the ground, visitors are driven by sentiment, and the prevailing news coverage that depicts a dangerous situation has made the image of Russia one of danger and uncertainty. Russia’s tourism economic indicators presented in the WTTC models are shown in the table below:   Table 2 Russia’s tourism economic indicators, billion rubles   2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Rating GDP               Narrow concept 151,2 167,3 201,4 255,1 307,8 358,4 375.3 388.09 398.4 406.72 23 (165) Wide concept 884,5 1001,3 1214,6 1558,1 1786,3 2100,3 2211.2 2256.42 2301.12 2398.12 12 (138) Employment, thousand people               Narrow concept 800,9 724,9 694,8 699,9 683,6 684,4 686.78 693.78 698.89 796.23 20(166) Wide concept 4572,3 4230,5 4086,2 4168,3 3871,7 3913,3 11(143) Tourist consumption 798,9 888,3 1041,2 1287,9 1548,4 1707,9 1808.34 1898.98 1923.32 1989.980 13 (156) Public expenses             12(119) individual 15,0 18,4 22,5 28,8 35,6 39,7   collective 34,3 42,3 51,5 66,1 81,6 91,1   Investments 212,8 281,3 347,5 532,6 599,1 709,7 9(80) Tourists export 170,2 180,4 200,4 216,6 235,8 240,0 244.32 256.78 287.209 298.75 26(151) Before the onset of the recent crisis in Ukraine, tourism in Russia has been growing at a rapid rate. Fuelled by the country’s rich history, strong economy and vast geographical features, both inbound and outbound tourism have been on an upward trend. It is important to note that Russia enjoys one of the largest travel markets in the globe, with a record forty million outbound tourists registered last year (Anon., 2012). The rate of inbound tourism has remained on an upward trend in each given year. In fact, the sector registered over 22 million international tourist arrivals last year, which was an increase of 12% from the arrivals recorded in the previous year (UNWTO, 2013b). The country is thus an important market, and this has earned it recognition as a critical growth region. Hilton worldwide has invested heavily in the region with many hotel openings slated in Russia over the next few years than in any other place in Europe (Business Tourism Partnership, 2007). With all the good news and the bright prospects for the tourism industry in the next few years, it is plausible that the emergence of the security crisis in Ukraine has become a great concern. Thus, there is a looming possibility that the crisis will reverse the gains already made in making Russia a tourist destination of choice across Europe (WTO Commission for Europe, 2008). It is notable that the number of inbound tourists hit 2.2 million in 2011, representing an increase of 11% from the figures recorded in 2010 (UNWTO, 2013). The figures continued to grow by an average of 10% between 2011 and 2013, reaching 2.7 million tourists as at the close of 2013. However, the recent uncertainty surrounding the fate of the crisis in Ukraine has slowed the growth rate. Furthermore, experts have predicted that a slow rate of 5% is expected to prevail between now and 2017 (Algier 2013). As at 2011, the average number of domestic tourists hit 96.4 million, representing a 2.5% increase of the figures recorded in the previous year. This number had been predicted to grow by an average of 4.3% over the next five years owing to a predicted increase in disposable income (IMF, 2013). However, it remains to be seen whether the current security crisis in neighboring Ukraine will have any significant effect on these projections (Bednova & Ratnikova, 2011). Without the currents security crisis in Ukraine, it is notable that the future of Russia in increasing its numbers of business tourists appears very promising. Proximity to Eastern European countries, Middle East and the Baltic Republics are some of the factors that influence country’s capacity to attract business tourists (NeTour, n.d.). Government’s commitment to tourism The government has invested a lot of resources towards the development of tourism infrastructure with the aim of improving the country’s economic situation. One of the major initiatives includes the new federal tourism development program that was approved by the federal parliament. The program is expected to be a key driver of the tourism industry in the forecast period between 2013 and 2018. A great portion of the programs $ 11 billion will go towards investments in promotional activities and infrastructural development between now and 2018 (The World Bank, 2009). The government also intends to spend approximately $2 million in advertisement campaigns through major social media platforms such as Facebook, Twitter and the country’s biggest social network, Vkontakte. It is important to note that the federal program was initiated with the aim of improving the image of the country as a tourist destination. In addition, it was established to enhance the national tourism product, encourage foreign investments in the country’s tourism infrastructure and increase the competitiveness of the tourism industry. In addition to the program, the government has started rapid rebranding of the country in the global tourism market. In collaboration with the private sector and other stakeholders, the government has initiated significant efforts aimed at presenting the country as a favorable tourist destination in Europe and the whole world (Song & Li, 2008). The government also intends to initiate measures that will simplify the country’s visa system in order to unlock the full potential of the tourism industry. Although the dialogue concerning removal of visa requirements is still underway, some restrictions have already been set aside. For example, all far-off tourists stay for up to three days in St. Petersburg when they arrive by cruise ships or ferry (ICEX, 2013). Domestic tourism in the country has suffered from the poor state of the country’s tourism infrastructure, such as the prevailing shortage of entertainment and accommodation resources (Burns, 2005). The sector also suffers from the poor state of local road network and local attractions. It is important to note that accommodation facilities in and around Moscow are among the most expensive in the world, and this has had a negative effect on both domestic and international tourism. Additionally, the quality conditions of accommodation facilities appear very inconsistent across the country (IVEX, 2013). Another major setback stems from the fact that the country lacks a consistently attractive depiction as a major tourist destination. This is mainly because the country has not developed a tourism brand to attract international tourists. The number of inbound trips to Russia by international tourists remains very low when compared to the number of outbound tourists who leave the country. The recent global recession has been a major reason for the decline in arrivals, and the recent crises in Ossetia and now in Ukraine have only served to exacerbate the situation. Away from matters that concern the state of security, it is plausible that many international tourists prefer other places other than Russia. Thus, it is as a result of the country’s uneven quality of tourism services, high prices of goods and services and general lack of reliable information concerning the country and its tourism potential. The majority of transnational tourists consider Russia as a closed nation, characterized by visa restrictions and an ever growing peril of terrorism (Anon., 2012). The slow rate of reviewing the visa requirements, couple by the recent crisis in Ukraine has only served to reinforce these negative perceptions about the country’s tourism sector. Tourism remains a key factor that impedes the growth of inbound tourism in Russia. The Southern regions such as Chechen, Ossetia and Karachay-Cherkessia have a lot of tourism potential. However, these regions have remained some of the most dangerous places in the world, and it is obvious that domestic or international tourists do not recommend them. The recent flare-up in the eastern region towards the border with Ukraine has only served to limit the country’s tourism potential. Moscow remains one of the most preferred attractions for both inbound and local tourists owing to its well-developed transport network. The infrastructure comprises of some of the country’s largest airports and a diverse range of shopping malls and luxury hotel chains. The rate of inbound arrivals through air has grown substantially due to the rapid development of airport infrastructure and improvement of local air carriers. Furthermore, the recent entry of low-cost carriers and the government’s commitment to modernize existing airports project a promising future for the country’s tourism sector (Gulyaev, 2006). Due to the crisis in Ukraine, tourism agencies in Russia have encountered their greatest losses in decades. In July this year, Neva, one of the country’s oldest tour agencies, reported that it has become unable to fulfill its tourism obligations. This has resulted in the immediate cancellation of more than 6000 active tours. Two other smaller companies halted their services towards the end of July, and only recently, the largest tour operator, Labyrinth, suspended its operations, consequently leaving more than 25,000 clients stranded overseas. The company stated its main reason for the shutdown as the overall economic and political environment and the falling value of the local currency against major foreign currencies. Due to these reasons, the country’s economy is struggling to avoid dipping into recession and the tourism industry has suffered the greatest hitch. In April this year, the media reported a government advisory that urged state employees to reconsider their decision to travel abroad and this greatly affected the rate of outbound tourism. Furthermore, the resultant negative image that arose out of the stand-off between Moscow and the West over the crisis in Ukraine has greatly affected the number of incoming tourists. Legislation Affecting Tourism Due to some recent incidents where some major travel agencies went into bankruptcy and seriously affected the tourism industry in the country, the government has initiated reforms in the legislation that regulates the operations of travel agents. Some compensation funds for tourist protection together with increased guarantees for tour agencies have already been established. According to the legislation, it is now compulsory for travel agents to subscribe to the reimbursement fund. As a result, the government has been assured that only travel operators with succinct financial backgrounds can contribute to the fund, and they are the only ones licensed to operate. Strengths Government commitment to promote tourism activities. Government’s pledge for $ 3 billion initiatives for upgrading tourism infrastructure. Country’s integration into international business networks, such as the country’s membership to global tourism institutions. Weaknesses delayed improvement of visa bureaucracy Little branding of the country’s image as a tourist destination. Failure by major cities to utilize their sector expertise in attracting business tourists. Lack of business training within the tourism industry. Complicated The process of obtaining visas and administrative controls Opportunities country’s hosting of major international events increasing availability of highly efficient network of high-speed trains Government’s pledge to lower administrative barriers. Threats The current security situations, such as the crisis in Ukraine Country’s scarce accommodation facilities and the expensive nature of the existing facilities. Competition from other attractive sites across the world. It is plausible that the country provides a wide range of tourist destinations, although most of the attractions have remained largely under-developed. It is important for the government to initiate measures that will combine business tourism with other types of tourism. This could comprise combining business tourism with social tourism in St. Petersburg or combining it with sports tourism in Sochi. The government needs to appreciate the fact that most natural and cultural assets have remained largely unexplored and unexploited (Gannon, 2004). It is notable that the tourism industry thrives on a well-developed network of travel and transport infrastructure. However, the slow rate of developing the major roads and railways network has been slow in the last few years. Furthermore, it is notable that most of the developments are undertaken with business prospects in mind and without any regard to the tourism industry. There is some hope that the government has awaken to the potential that the tourism sector holds (Chernova & Erokhin, 2010a). In essence, the recent projects aimed at improving tourism groundwork will go far off in unlocking the full potential of the tourism industry. Furthermore, this will make the country a preferred tourist destination (Crouch & Richie, 2007). The increasing availability of highly efficient network of high-speed trains will offer the country’s tourism companies an opportunity to compete favorably with other recognized international destinations (Jafari, 2005). Even as infrastructural development continues, the government must implement initiatives that will identify the country as an easy tourism market both for domestic and international tourists. There is very little branding and the country’s image as a tourist destination remains greatly undeveloped (Hawkins & Middleton, 2009). The number of meeting venues has grown significantly in major cities such as Moscow and St. Petersburg, although these venues have not gained international recognition as places that offer sufficient range and quality. In other subsidiary cities, the supply of essential services has remained weak. The only exception has been Sochi owing to its recent developments in preparation for the 2014 winter games. In regards to tourism, it is important for the government to initiate rural upgrade initiatives if any goals of positioning the country in business and MICE tourism market are to be realized (Lane, 2005). When it comes to customs operations and activities, it is notable that these services have been very slow, with many delays resulting from technical barriers and other certification problems. The government must be commended for the recent administrative proceedings aimed at streamlining bureaucracy in the provision of these services. However, a lot remains to be done in order to eliminate any delays in visa processing and encourage international tourists to visit the country with relative ease (Horner & Swarbrooke, 2004). By assuming that the administrative barriers for business will continue to be lowered over the next few years, it is expected that the skills and expertise level of tourism professionals will continue to improve. Moreover, quality services are deemed to continue as the norm. In this regard, it is reasonable for one to expect that executives of foreign companies will continue to visit the country. Furthermore, the country will become an attractive destination for hosting major business events, and hence attracting many business tourists (Swarbrooke and Horner, 2005). The Russian government must continue with its current investments in tourism infrastructure, including the development of more Specific Economic Zones that bear a special dedication to tourist activities and services. It is notable that these zones provide highly favorable tax conditions, and this attracts increased interest by both domestic and international players in tourism and travel sectors (Nureev & Yevgeniy, 2010). One major driver of tourism in the country in the next few years include the country’s hosting of major international events such as the Winter Olympics in 2014 and the FIFA World Cup later in 2018. Due to these activities, the country will undertake serious preparations pertaining to travel accommodation, transportation, security and safety, as well as the quality of tourism products and services. These activities are expected to boost the tourism industry by a great deal (Kleyner, 2010). The selection of the country to host the 2014 Winter Olympic Games in the city of Sochi must be commended since the move has stimulated further investment pledges by the government as well as the private sector. It is important to note that Sochi serves as the center of the Krasnodar region where more than 50% of the country’s tourist reserves are found (Eyefor Travel, 2013). Thus, it is important for the government to commit more initiatives towards the attraction of major events into the country, and this should be followed by an increased investment in support infrastructure for such events. In this regard, it is expected that the government will utilize its choice as it hosts the 2018 FIFA World Cup games. Therefore, the government will develop more infrastructures that will enable the country to showcase its tourist potential during and after the games. Finally, the government needs to be aware that tourism thrives in an environment of peace and tranquility. In this regard, there is an urgent need for the government to address the current security situations, such as the crisis in Ukraine. Therefore, the subsequent stand-off with the West and other European countries that has threatened the tourism industry in the country. Apart from directly scaring away many would-be visitors, the situation has threatened the economic situation in the country. Moreover, the circumstances may limit the ability of the government and private sector to fund major tourism projects (Ruutu & Panfilo, 2009). Apart from leisure tourists, insecurity also scares away many business investors, and this denies the country of its potential business tourists. The only way to ensure the success of the many initiatives geared towards the tourism industry is by creating an environment where both local and international tourists are assured of their security. In conclusion, it can be said that Russia remains a classic example of major tourist services generator as this is proved by the current prevalence of exit flows over and above the entrance ones. However, the current initiatives aimed at developing national recreation and tourism facilities provide the opposite trend. In order for the country to earn itself a place among the world’s major tourist destinations, the government must initiate policies that will streamline the tourism sector and make the country a recipient of tourist inflows. Apart from dealing with the current security crisis that threatens to bring the tourist sector on its knees, the government must remain focused on increasing active investment on modern and diverse tourist products and services. Furthermore, there is an immediate need to improve hotel and transport infrastructure as these are the major facilities that have the potential to contribute to high tourism sector efficiency and reduce economic risks that threaten the industry. References Algieri, B., 2006. An econometric estimation of the demand for tourism: The case of Russia. Tourism Economics, 12, 5–20. Anon., 2012. Balancing Russias Tourism Deficit: A Report on the Future of the Industry, Moscow: Hilton Worldwide. Bednova, M., & Ratnikova, T., 2011. Econometric analysis of the demand for the inbound tourism in Russia. Applied Econometrics, 21 (1), 96–112. Blanke, J., & Chiesa, T., 2013. The Travel & Tourism Competitiveness Report 2013. World Economic Forum, 2 (5); 156-444. 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